Uranium

Glowing

As the price of uranium rises, ever more firms seek to cash in on it

CALL it a boom within a boom. The prices of various metals continue to set new records: on August 16th, for example, a tonne of nickel traded for more than $29,000. Mining firms, meanwhile, are as sought-after as the stuff they produce: this week, Xstrata, a Swiss mining group, won a battle to buy Falconbridge, a Canadian one, while CVRD, a Brazilian firm, became the third bidder for Inco, Falconbridge's former suitor. Yet even by these standards, uranium and the firms that dig it up are hot commodities.

The price of uranium oxide, from which fuel for nuclear power plants is made, has risen from $7.25 a pound in 2001 to $47.25—a record in nominal terms. In the same period, the shares of Cameco, the Canadian firm that is the world's biggest producer of uranium, have risen from less than $3 to over $38 (see chart).

In part, the rise simply reflects the cyclical nature of most commodities. But the changing fortunes of nuclear power have accentuated the ups and downs for uranium. In the 1970s miners expanded their output, and generating firms built up stocks of fuel, in anticipation of a steady expansion of nuclear power. But after nuclear accidents at Three Mile Island in America in 1979 and at Chernobyl in the Soviet Union in 1986, nuclear power fell out of favour. The end of the cold war made matters worse for miners: America and Russia began converting enriched uranium from decommissioned nuclear weapons into fuel, adding to supply just as demand was ebbing. The price of uranium duly tumbled, and lots of mines closed.

Nowadays, barely half of the uranium needed to run the world's nuclear power plants comes from mines. Existing stocks, former nukes and reprocessed fuel provide the rest. But these secondary supplies are beginning to run low. Demand, meanwhile, is rising—27 new nuclear plants are under construction, to add to the 442 already operating, according to the International Atomic Energy Agency, the United Nations' nuclear watchdog. Many countries are planning to build more, or are at least contemplating the idea. Moreover, since nuclear plants are cheap to operate but expensive to mothball, they are often run at full tilt even when demand for power slackens.

Unearthing more uranium is expensive and time-consuming. Equipment and engineers are in desperately short supply for all mining projects at the moment. In many countries planning restrictions have become more onerous since uranium's heyday in the 1970s. Australia, for one, has the world's biggest reserves, but only three mines. The country's federal government recently decided to drop its long-standing ban on new mines, but state governments have yet to follow suit.

Those obstacles have not deterred several new firms that hope to strike it rich with uranium. Andrew Ferguson, who manages Geiger Counter, a nuclear investment fund, reckons that more than 200 uranium-mining firms have listed on stockmarkets around the world in the past 18 months. Geiger Counter itself listed on the London Stock Exchange (LSE) last month. A Canadian-based firm with mines in Kazakhstan, UrAsia Energy, will join the LSE's Alternative Investment Market (AIM) later this month. Unlike other commodities, uranium itself does not trade on any exchanges. But earlier this year, Nufcor Uranium, a firm that simply stockpiles uranium, also listed on AIM, allowing investors to bet on the price, rather than on specific mining projects. Shares in another such firm, Uranium Participation Corporation, have risen by more than half since their listing in Toronto last year.

Most of these start-ups, however, do not have any uranium in hand—just plans to look for it. John Wilson, of Resource Capital Research, says it takes at least five years to develop new mines once the stuff is found. By then, analysts guess, the price will have fallen back a bit, along with some of the wilder share valuations.